What about my bonus?

I’ve seen a lot of listserve traffic about what kind of bonus or incentive program to give employees. Some of these organizations are nonprofit with fewer than thirty employees, and they typically don’t have too much money at the end of the year to distribute. But they do have some, so they look for ways to ensure that each individual gets the “right” bonus. This ultimately involves ranking people, and giving those at the “top” of the performance curve more money (it’s only fair, right?).

Although arguably fair, it may have some unintended negative side effects. Marshall Van Alstyne points out in this month’s Harvard Business Review that rewarding individual performance can have a seriously negative impact on sharing information within the organization. He presents a great diagram showing simply the email traffic between and among two offices in the same organization. The office that rewards everyone for organizational performance is a rich web of lines, many of them thick (representing higher email traffic), while the other (that rewards individual performance) is sparse, with each person connecting to only two or three others. Here’s the kicker: each additional connection reflected an average of $6,000 in additional revenues generated.

It’s just one example, but rewarding people for organizational performance yielded more knowledge shared and better financial results. Are you willing to be “unfair” (certainly some carried more weight than others) in order to increase overall performance?


  1. 13.09.2005 at 9:47 am

    Interesting! I’m not a HBR subscriber, so I didn’t read the article, but based on your post, I see one potential road bump in this theory. Bonuses, like raises, often take things other than individual or group performance into account, at least in the corporate world. Bonuses and raises often are percentage-based, so higher wage-earners automatically get larger bonuses/raises, regardless of their job performance, even if the percentage is the same across the board. Unless the actual dollar amounts are the same for all, I don’t think the results would be quite so good.
    And, if we’re honest, we also know that things other than individual, group, or even organizational performance get into the mix, unfortunately. I like the idea of an egalitarian bonus approach, but don’t see it happening in the real world–it would require those in power to give up a little more power than might be comfortable. I can also see high performers feeling a little put out when the slackers are rewarded equally. Or am I just a horrible cynic?
    What I’d really like to see is an organization that takes the time and energy to figure out exactly what would constitute a good reward for each staff person–not everyone wants cash on the table. A two-week sabbatical might be worth far more to some staff than the actual cost of having them out during that period. Others might value flex time, or job-sharing, or telecommuting, or more continuing education opportunities…the possibilities are as varied as the employees. That way, no one has to hoard info about their bonuses, since nothing is comparable anyway, and everyone gets what they really want, regardless of actual cash value.
    Can a horrible cynic also be a dreamer?

  2. 14.09.2005 at 9:43 pm

    Jamie, like Sue, I haven’t read the HBR article either, so this is somewhat flying blind, but there are all sorts of red flags raised by your summary.
    First of all, without context or history, the comparison between the two offices is practically meaningless. How do their performances compare to what went on prior to their instituting these bonus schemes? How do they swing or not down the road? How are individual performances affected by giving blanket bonuses(continue to vary? settle into same level?) Most importantly, do high performers who raise the curve, so to speak, stick around over time?
    A snapshot of email traffic, it seems to me, proves very little given the extraordinary number of extraneous factors that may be involved. Are the individuals who perform at a higher level part of the email conversation? Or is it mostly comprised of everyone else making happy hour plans?
    Flippancy aside, from the association standpoint, this sort of thing gets even more complicated, because there are frequently far more complex things involved in the organization’s success than whether or not there’s money left over at the end of the year. In most associations, there are lots of departments or staff who are not tied directly (or at least not easily) to revenue generation. This doesn’t mean they are not important — far from it — but treating everyone as if they performed the same way in a given year does nothing but breed an all-too-common bitter competitiveness between “profit centers” and “cost centers.”
    IMHO, any association that wants to attract and retain good employees recognizes that individuals bring different strengths (and weaknesses), both of which can play an integral role in the organization’s growth. Base bonuses and increases on both an established set of organizational goals, which depend on all staff (and for which all staff are rewarded when hit), and individual goals (for which individuals are rewarded when hit).
    “Egalitarianism” is a very nice and sweet ideal toward which to strive, but I thought by now the world had laid any notion of its practicality to rest.

  3. 16.09.2005 at 6:12 am

    Great comments! Sue, right on that bonuses can be about power as much as they are about acknowledging hard work.
    And Kevin, yes, the article does not present a clear and researched position that group rewards lead to more profits in a cause and effect kind of way. Their research indicated only that “people rewarded for individual performance shared information least; the people rewarded for team performance shared more; and the pepel rewarded for company performance shared most.” (It’s not a full-blown article; it’s a piece in the “Forethought” section).
    If the money you make is based on your performance relative to others, they find, then you are less likely to share information. So I guess it depends on how you structure individual bonuses, and whether they are pegged to what other individuals are doing. I don’t think they were advocating some kind of “everyone is equal” scenario. but they (I) are challenging the notion that individual-based rewards are simply a good idea, no matter what. They may make sense, but they also may bring negative consequences, like information hoarding.
    I’m also challenging, like Sue, the notion that financial incentives are an equally strong motivator for everyone. I too would like to see research about whether or not top performers stay at organizations where bonuses are based on organizational performance, because I think in many cases they would.
    I’m not a compensation expert, nor am I trying to be, but I do want to encourage people to challenge their own thinking about these issues.
    Thanks for the great comments!